H.R. 5463

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5463 Introduced in House (IH)]

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119th CONGRESS
1st Session
H. R. 5463

To amend the Internal Revenue Code of 1986 to provide for the treatment 
of employer-provided health reimbursement arrangements that are 
integrated with individual market coverage, and for other purposes.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

September 18, 2025

Mr. Hern of Oklahoma (for himself, Ms. Van Duyne, and Ms. Tenney) 
introduced the following bill; which was referred to the Committee on 
Ways and Means

_______________________________________________________________________

A BILL

To amend the Internal Revenue Code of 1986 to provide for the treatment 
of employer-provided health reimbursement arrangements that are 
integrated with individual market coverage, and for other purposes.

Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Choice Arrangement Act of 2025''.

SEC. 2. TREATMENT OF HEALTH REIMBURSEMENT ARRANGEMENTS INTEGRATED WITH 
INDIVIDUAL MARKET COVERAGE.

(a) In General.--Section 9815(b) of the Internal Revenue Code of 
1986 is amended--
(1) by striking ``Exception.--Notwithstanding subsection 
(a)'' and inserting the following: ``Exceptions.--
``(1) Self-insured group health plans.--Notwithstanding 
subsection (a)'', and
(2) by adding at the end the following new paragraph:
``(2) Custom health option and individual care expense 
arrangements.--
``(A) In general.--For purposes of this subchapter, 
a custom health option and individual care expense 
arrangement shall be treated as meeting the 
requirements of section 9802 and sections 2705, 2711, 
2713, and 2715 of title XXVII of the Public Health 
Service Act.
``(B) Custom health option and individual care 
expense arrangements defined.--For purposes of this 
section, the term `custom health option and individual 
care expense arrangement' means a health reimbursement 
arrangement--
``(i) which is an employer-provided group 
health plan funded solely by employer 
contributions to provide payments or 
reimbursements for medical care subject to a 
maximum fixed dollar amount for a period,
``(ii) under which such payments or 
reimbursements may only be made for medical 
care provided during periods during which the 
individual is covered--
``(I) under individual health 
insurance coverage (other than coverage 
that consists solely of excepted 
benefits), or
``(II) under part A and B of title 
XVIII of the Social Security Act or 
part C of such title,
``(iii) which meets the nondiscrimination 
requirements of subparagraph (C),
``(iv) which meets the substantiation 
requirements of subparagraph (D), and
``(v) which meets the notice requirements 
of subparagraph (E).
``(C) Nondiscrimination.--
``(i) In general.--An arrangement meets the 
requirements of this subparagraph if an 
employer offering such arrangement to an 
employee within a specified class of employee--
``(I) offers such arrangement to 
all employees within such specified 
class on the same terms, and
``(II) does not offer any other 
group health plan (other than an 
account-based group health plan or a 
group health plan that consists solely 
of excepted benefits) to any employees 
within such specified class.
In the case of an employer who offers a group 
health plan provided through health insurance 
coverage in the small group market (that is 
subject to section 2701 of the Public Health 
Service Act) to all employees within such 
specified class, subclause (II) shall not apply 
to such group health plan.
``(ii) Specified class of employee.--For 
purposes of this subparagraph, any of the 
following may be designated as a specified 
class of employee:
``(I) Full-time employees.
``(II) Part-time employees.
``(III) Salaried employees.
``(IV) Non-salaried employees.
``(V) Employees whose primary site 
of employment is in the same rating 
area.
``(VI) Employees who are included 
in a unit of employees covered under a 
collective bargaining agreement to 
which the employer is subject 
(determined under rules similar to the 
rules of section 105(h)).
``(VII) Employees who have not met 
a group health plan, or health 
insurance issuer offering group health 
insurance coverage, waiting period 
requirement that satisfies section 2708 
of the Public Health Service Act.
``(VIII) Seasonal employees.
``(IX) Employees who are 
nonresident aliens and who receive no 
earned income (within the meaning of 
section 911(d)(2)) from the employer 
which constitutes income from sources 
within the United States (within the 
meaning of section 861(a)(3)).
``(X) Under such rules as the 
Secretary may prescribe, employees who 
are hired for temporary placement with 
an unrelated person that is not the 
common law employer.
``(XI) Such other classes of 
employees as the Secretary may 
designate.
An employer may designate (in such manner as is 
prescribed by the Secretary) two or more of the 
classes described in the preceding subclauses 
as the specified class of employees to which 
the arrangement is offered for purposes of 
applying this subparagraph.
``(iii) Special rule for new hires.--An 
employer may designate prospectively so much of 
a specified class of employees as are hired 
after a date set by the employer. Such subclass 
of employees shall be treated as the specified 
class for purposes of applying clause (i).
``(iv) Rules for determining type of 
employee.--For purposes for clause (ii), any 
determination of full-time, part-time, or 
seasonal employment status shall be made under 
rules similar to the rules of section 105(h) or 
4980H, whichever the employer elects for the 
plan year. Such election shall apply with 
respect to all employees of the employer for 
the plan year.
``(v) Permitted variation.--For purposes of 
clause (i)(I), an arrangement shall not fail to 
be treated as provided on the same terms within 
a specified class merely because the maximum 
dollar amount of payments and reimbursements 
which may be made under the terms of the 
arrangement for the year with respect to each 
employee within such class--
``(I) increases as additional 
dependents of the employee are covered 
under the arrangement, and
``(II) increases with respect to a 
participant as the age of the 
participant increases, but not in 
excess of an amount equal to 300 
percent of the lowest maximum dollar 
amount with respect to such a 
participant determined without regard 
to age.
``(D) Substantiation requirements.--An arrangement 
meets the requirements of this subparagraph if the 
arrangement has reasonable procedures to substantiate--
``(i) that the participant and any 
dependents are, or will be, enrolled in 
coverage described in subparagraph (B)(ii) as 
of the beginning of the plan year of the 
arrangement (or as of the beginning of coverage 
under the arrangement in the case of an 
employee who first becomes eligible to 
participate in the arrangement after the date 
notice is given with respect to the plan under 
subparagraph (E) (determined without regard to 
clause (iii) thereof), and
``(ii) any requests made for payment or 
reimbursement of medical care under the 
arrangement and that the participant and any 
dependents remain so enrolled.
``(E) Notice.--
``(i) In general.--Except as provided in 
clause (iii), an arrangement meets the 
requirements of this subparagraph if, under the 
arrangement, each employee eligible to 
participate is, not later than 60 days before 
the beginning of the plan year, given written 
notice of the employee's rights and obligations 
under the arrangement which--
``(I) is sufficiently accurate and 
comprehensive to apprise the employee 
of such rights and obligations, and
``(II) is written in a manner 
calculated to be understood by the 
average employee eligible to 
participate.
``(ii) Notice requirements.--Such notice 
shall include such information as the Secretary 
may by regulation prescribe.
``(iii) Notice deadline for certain 
employees.--In the case of an employee--
``(I) who first becomes eligible to 
participate in the arrangement after 
the date notice is given with respect 
to the plan under clause (i) 
(determined without regard to this 
clause), or
``(II) whose employer is first 
established fewer than 120 days before 
the beginning of the first plan year of 
the arrangement,
the requirements of this subparagraph shall be 
treated as met if the notice required under 
clause (i) is provided not later than the date 
the arrangement may take effect with respect to 
such employee.''.
(b) Inclusion of CHOICE Arrangement Permitted Benefits on W-2.--
(1) In general.--Section 6051(a) of such Code is amended by 
striking ``and'' at the end of paragraph (18), by striking the 
period at the end of paragraph (19) and inserting ``, and'', 
and by inserting after paragraph (19) the following new 
paragraph:
``(20) the total amount of permitted benefits for enrolled 
individuals under a custom health option and individual care 
expense arrangement (as defined in section 9815(b)(2)) with 
respect to such employee.''.
(c) Treatment of Current Rules Relating to Certain Arrangements.--
(1) No inference.--To the extent not inconsistent with the 
amendments made by this section--
(A) no inference shall be made from such amendments 
with respect to the rules prescribed in the Federal 
Register on June 20, 2019, (84 Fed. Reg. 28888) 
relating to health reimbursement arrangements and other 
account-based group health plans, and
(B) any reference to custom health option and 
individual care expense arrangements shall for purposes 
of such rules be treated as including a reference to 
individual coverage health reimbursement arrangements.
(2) Other conforming of rules.--The Secretary of the 
Treasury, the Secretary of Health and Human Services, and the 
Secretary of Labor shall modify such rules as may be necessary 
to conform to the amendments made by this section.
(d) Effective Date.--The amendments made by this section shall 
apply to plan years beginning after December 31, 2025.

SEC. 3. PARTICIPANTS IN CHOICE ARRANGEMENT ELIGIBLE FOR PURCHASE OF 
EXCHANGE INSURANCE UNDER CAFETERIA PLAN.

(a) In General.--Section 125(f)(3) of the Internal Revenue Code of 
1986 is amended by adding at the end the following new subparagraph:
``(C) Exception for participants in choice 
arrangement.--Subparagraph (A) shall not apply in the 
case of an employee participating in a custom health 
option and individual care expense arrangement (within 
the meaning of section 9815(b)(2)) offered by the 
employee's employer.''.
(b) Effective Date.--The amendment made by this section shall apply 
to taxable years beginning after December 31, 2025.

SEC. 4. EMPLOYER CREDIT FOR CHOICE ARRANGEMENT.

(a) In General.--Subpart D of part IV of subchapter A of chapter 1 
of the Internal Revenue Code of 1986 is amended by adding at the end 
the following new section:

``SEC. 45BB. EMPLOYER CREDIT FOR CHOICE ARRANGEMENT.

``(a) In General.--For purposes of section 38, in the case of an 
eligible employer, the CHOICE arrangement credit determined under this 
section for any taxable year is an amount, with respect to each 
employee enrolled during the credit period in a CHOICE arrangement 
maintained by the employer, equal to--
``(1) $100 multiplied by the number of months for which the 
employee is so enrolled during the first year in the credit 
period, and
``(2) one-half of the dollar amount in effect under 
paragraph (1) for the taxable year, multiplied by the number of 
months for which the employee is so enrolled during the second 
year of the credit period.
``(b) Arrangement Must Constitute Minimum Essential Coverage.--An 
employee shall not be taken into account under subsection (a) unless 
such employee's eligibility for the CHOICE arrangement (determined 
without regard to the employee being enrolled) would cause the employee 
to be treated under section 36B(c)(2) as being eligible for minimum 
essential coverage consisting of an eligible employer-sponsored plan 
(as defined in section 5000A(f)(2)).
``(c) Definitions.--For purposes of this section--
``(1) CHOICE arrangement.--The term `CHOICE arrangement' 
means a custom health option and individual care expense 
arrangement (as defined in section 9815(b)(2)(B)).
``(2) Credit period.--The credit period with respect to an 
eligible employer is the first 2 one-year periods beginning 
with the month during which the employer first establishes a 
CHOICE arrangement on behalf of employees of the employer.
``(3) Eligible employer.--The term `eligible employer' 
means, with respect to any taxable year beginning in a calendar 
year, an employer who is not an applicable large employer for 
the calendar year under section 4980H.
``(d) Inflation Adjustment.--
``(1) In general.--In the case of any taxable year 
beginning in a calendar year after 2026, the dollar amount in 
subsection (a) shall be increased by an amount equal to--
``(A) such dollar amount, multiplied by
``(B) the cost-of-living adjustment determined 
under section 1(f)(3) for the calendar year in which 
such taxable year begins by substituting `calendar year 
2025' for `calendar year 2016' in subparagraph (A)(ii) 
thereof.
``(2) Rounding.--If any amount after adjustment under 
paragraph (1) is not a multiple of $10, such amount shall be 
rounded to the next lower multiple of $10.''.
(b) Credit Made Part of General Business Credit.--Section 38(b) of 
such Code is amended by striking ``plus'' at the end of paragraph (40), 
by striking the period at the end of paragraph (41) and inserting ``, 
plus'', and by adding at the end the following new paragraph:
``(42) the CHOICE arrangement credit determined under 
section 45BB(a).''.
(c) Credit Allowed Against Alternative Minimum Tax.--Section 
38(c)(4)(B) of such Code is amended--
(1) by redesignating clauses (x), (xi), and (xii) as 
clauses (xi), (xii), and (xiii), respectively, and
(2) by inserting after clause (ix) the following new 
clause:
``(x) the credit determined under section 
45BB,''.
(d) Clerical Amendment.--The table of sections for subpart D of 
part IV of subchapter A of chapter 1 of such Code is amended by adding 
at the end the following new item:

``Sec. 45BB. Employer credit for CHOICE arrangement.''.
(e) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 2025.
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